The Trouble with Managed Services: Making the Move to a New Business Model

By Jessica Davis

Cloud, cloud, cloud. That's all vendors talk about these days. It's just about all Microsoft CEO Steve Ballmer talked about during his keynote address at the Microsoft Worldwide Partner Conference last month (or as he would say it: "Cloud, cloud, cloud, blah blah blah"), and it's clear that managed services, cloud and software as a service are at top of mind for vendors, at least, and perhaps also for some solution providers who are considering how it may be possible to make the transition.

But for anyone who has ever contemplated moving from one business model to another, it seems there's some kind of quantum leap involved. The path from one to the other doesn't make much sense at all. And the stumbling blocks to that move were acknowledged by IT solution providers this week participating in a panel about just that—making the leap to managed services—presented during the CompTIA conference in San Antonio, Texas.

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For instance, how do you get an existing client who is signed on for just a few hours a month to start paying thousands of dollars a month? Can you?

The answer seems to be yes and no. Alex Rogers, CEO of ARRC Technologies, says you need to ask questions and find out where the issues are. Just because they don't tell you those issues exist doesn't mean that users aren't spending 20 minutes every morning waiting for their PCs to boot up.

But paying that much more is leaving customers and solution providers in a quandary, says Scott Barlow, vice president of sales and product management at Reflexion Networks. Financials are the biggest challenge, he says, when comparing the large chunk of cash that comes in today from project work versus the smaller amount that comes in monthly from managed services contracts.

And it's a different world for salespeople, too, acknowledges Jeannine Edwards, director of ConnectWise's Community. She told the panel that only one of three salespeople will make the transition from traditional IT solution provider business to managed services.

MJ Shoer, president of Jenaly, says his company spent about a year dithering about which MSP platform solution to choose and fussing over the price, initially opting for the least expensive. However, when he reverse-engineered the problem—thinking about what he wanted to offer customers and then looked at the PSA and tools that would allow him to do that—it all got simpler. He was spending more money than he should have been because his company was doing extra work to fill in for the least expensive tools he used to start with.

Beyond the tool choices, the big thing that made a difference to Jenaly's managed services practice was simply making a conviction to following through.

"You've got to have that strong conviction," he says. "When you are marketing to new clients, your marketing has to convey that strong conviction."

And new clients may be the way to go when you are starting with managed services, rather than trying to transition your existing clients who are happy with the status quo. Edward Stringfellow, CEO and president of Stringfellow Technology Group, a Nashville-based MSP, says it doesn't make sense to try to transition current break/fix clients to the managed services model.

"A lot of folks are holding onto hourly clients thinking they are going to convert them," he says. "You won't. You are already giving them what they want. A guy who has been spending $20,000 a year with me is not going to turn around now and spend $50,000."

That's why Stringfellow started up his company from scratch in 2004 as an MSP, only offering those services to customers. And another big issue that many VARs don't discuss is whether it makes sense to convert smaller existing clients, Stringfellow told Channel Insider. For clients with fewer than 30 users, it's very difficult to justify a managed services contract because the revenue is not high enough to justify a single catastrophic server failure. Those small VARs looking to transition those smaller customers will continue to run into trouble.

These early pioneers in managed services certainly don't have every answer for a VAR looking to make the leap. But they demonstrate that the change is absolutely viable for a VAR willing to do the hard work and make the conviction to explore managed services.

Jenaly's Shoer recommends, in researching the tools: "If cost and time and people were no issue, what would I do? When I have that answer, then I would back into making it happen."

This article was originally published on 2010-08-10